Stocks fell sharply Thursday afternoon after a Bloomberg report that President Joe Biden is hoping to hike the capital gains rate to as much as 43.4%, sounding an alarm for investors concerned over the potential toll on trading profits.
As of 2:10 p.m. EDT, the Dow Jones Industrial Average was off 368 points, or 1.1%, to 33,770, erasing a 0.9% rally Wednesday and pushing the index deeper into negative territory for the week.
Meanwhile, the S&P 500 and tech-heavy Nasdaq also fell about 1.1% apiece, putting each of the major indexes on track for a third day of losses this week as corporate earnings begin to show signs of economic weakness.
According to Bloomberg, Biden’s proposed tax of 43.4% would lift the base capital gains rate, which is levied against profits from the sale of investments, to 39.6% from 20%—as previously reported—for individuals making more than $1 million annually, but it also bundles in the existing Obamacare tax of 3.8% on certain capital gains.
The report, published shortly after 1 p.m., immediately tanked stocks, which were roughly flat for the day beforehand.
“Wall Street hit the panic button and headed for the sidelines” after the report, Oanda Senior Market Analyst Edward Moya said in a Thursday afternoon note, adding that the plan could mean a 56.7% and 56.2% total capital gains tax in California and New York, respectively. “Sticker shock over some of these tax figures will be hard to shake off for some investors.”
What To Watch For
Biden’s set to release additional details on his tax plan for individuals next week, Vital Knowledge Media Founder Adam Crisafulli said in a Thursday email. “This isn’t positive, but it’s also not new. . . . There is still a long road ahead, though, before any of this becomes law,” says Crisafulli, referencing the staunch opposition Biden is likely to face from Republicans who have argued that the current rates promote investment and economic growth.